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Israel's currency markets saw a major change this week: For the first time in many months, most of the foreign currency sold this week in Israel came from foreign investors, mostly speculative hedge funds.

A high-ranking official in the Bank of Israel confirmed the reports yesterday.

On Tuesday the central bank was forced to buy an exceptionally large amount of foreign currency. The exact amount is still unknown, because the Bank of Israel isn't saying. But observers estimate the amount was in the $800 million range.

The central bank was attempting to prevent a sharp rise in the shekel against the dollar and other currencies.

Forex dealers suspected foreign institutions were behind the heavy sales of foreign currency, but only the Bank of Israel has the full picture. Yesterday afternoon the central bank told TheMarker that foreigners were indeed behind the large sales.

Over the past few months, foreign investors were not the dominant players in currency sales, neither in the total sum nor in the number of deals. The big sellers were actually Israeli exporters, says the Bank of Israel. The exporters felt the dollar would fall and sold off their expected receipts in advance. These sales, says the central bank, were the main cause of the dollar's weakness against the shekel this summer.

Foreign investors may have been very active in the forex market, but their moves were more balanced: Some sold, and some bought.

The large sales by foreign institutions may have been an attempt to test the willingness of the Bank of Israel to stick to its present policies. If the bank gave in, then the dollar-shekel rate would plunge and the foreigners could buy back their dollars at a much cheaper price - and at a big profit.

Such a speculative attack by hedge funds on a local currency is not new or unusual. Over the past two decades several countries have been attacked that way, such as in Southeast Asia. The best-known case was the 1992 fight between George Soros and Britain, when Soros sold the pound sterling short to the tune of more than $10 billion on September 16, which became known as Black Wednesday. In the end the Bank of England had to give in and remove the pound from the European Exchange Rate Mechanism, and Soros made an estimated $1.1 billion that day alone.